What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-26 · 215 added, 212 removed, 658 unchanged (39% of the section changed)

15 unchanged sentences

The combined report on the consolidated financial statements of MGP Ingredients, Inc.

and subsidiaries and audit report as to the effectiveness of internal control over financial reporting is included in Item 8 of this Form 10-K.

and subsidiaries and audit report is included in Item 8 of this Form 10-K.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

To the the Stockholders and the Board of Directors

MGP Ingredients, Inc.:

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition under bill and hold arrangements

As discussed in Note 1 to the consolidated financial statements, the Company’s distillery products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells unaged distillate to customers.

A portion of brown goods premium beverage alcohol revenue, totaling $ 107,190 for the year ended December 31, 2019, is for bill and hold arrangements.

We identified the evaluation of revenue recognized under bill and hold arrangements as a critical audit matter because of the complexity from the additional effort required to test the incremental bill and hold revenue recognition criteria.

As discussed in Note 1 to the consolidated financial statements, the Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers.

As discussed in Note 3 to the consolidated financial statements, brown goods premium beverage alcohol revenue was $125,059 thousand for the year ended December 31, 2020, a portion of which was for bill and hold arrangements.

We identified the evaluation of revenue recognized under bill and hold arrangements as a critical audit matter because of the extent of additional audit effort required to test the incremental bill and hold revenue recognition criteria.

The incremental bill and hold revenue recognition criteria include the evaluation of:

1) the customer reason for the bill and hold arrangement;

1) the reason for the bill and hold arrangement;

2) the identification of the product as separately belonging to the customer;

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and 4) the Company’s inability to use the product or direct it to another customer.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s revenue recognition process, including controls related to bill and hold revenue recognition criteria being met.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue recognition process, including controls related to bill and hold revenue recognition criteria being met.

We examined a sample of bill and hold revenue transactions to assess the incremental bill and hold revenue recognition criteria.

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Sales $ 395,521 $ 362,745 $ 376,089

Cost of sales (a)

286,213 292,490 271,432

Cost of sales 296,715 286,213 292,490

Gross profit 98,806 76,532 83,599

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Operating income 54,241 47,242 50,148

Gain on sale of equity method investment — — 11,381

Equity method investment loss — — ( 348 )

Interest expense, net ( 1,305 ) ( 1,168 ) ( 1,184 )

Interest expense, net and other ( 1,640 ) ( 1,305 ) ( 1,168 )

Income before income taxes 52,601 45,937 48,980

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Basic and diluted Earnings Per Share $ 2.37 $ 2.27 $ 2.17

(a) Includes related party purchases of $ 18,425 for the year ended December 31, 2017.

There were no related party purchases for the years ended December 31, 2019 and 2018.

See Accompanying Notes to Consolidated Financial Statements

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Change in post-employment benefits 732 ( 151 ) 147

Other — — ( 4 )

Other comprehensive income (loss) 732 ( 151 ) 147

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Cash and cash equivalents $ 21,662 $ 3,309

Receivables (less allowance for doubtful accounts at December 31, 2019 and 2018 - $ 24

Receivables (less allowance for credit loss at December 31, 2020 and 2019 - $ 24 )

56,966 40,931

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Accounts payable 30,273 29,511

Income taxes payable 704 —

Accrued expenses 20,752 9,383

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Depreciation and amortization 12,961 11,572 11,362

Gain on sale of equity method investment — — ( 11,381 )

Share-based compensation 3,002 3,304 3,099

Equity method investment loss — — 348

Distributions received from equity method investee — — 7,131

Deferred income taxes, including change in valuation allowance 593 252 1,665

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Prepaid expenses ( 748 ) ( 728 ) 862

Refundable income taxes ( 275 ) 1,268 725

Income taxes payable (refundable) 1,750 ( 275 ) 1,268

Accounts payable 1,817 2,107 ( 2,542 )

Accounts payable to affiliate, net — — ( 3,349 )

Accrued expenses 11,503 ( 4,547 ) 551

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Additions to property, plant, and equipment ( 19,701 ) ( 16,730 ) ( 31,046 )

Divestiture of equity method investment, net — — 22,832

Deferred compensation plan investments ( 1,201 ) — —

Net cash provided by (used in) investing activities ( 17,931 ) ( 31,046 ) 1,777

Acquisition of business ( 2,750 ) — —

Proceeds from sale of property and other 2,906 — —

Other, net ( 102 ) ( 1,201 ) —

Net cash used in investing activities ( 19,647 ) ( 17,931 ) ( 31,046 )

Cash Flows from Financing Activities

Payment of dividends and dividend equivalents ( 8,188 ) ( 6,856 ) ( 5,500 )

Purchase of treasury stock for tax withholding on equity-based compensation ( 5,489 ) ( 2,324 ) ( 4,663 )

Purchase of treasury stock ( 4,411 ) ( 5,489 ) ( 2,324 )

Loan fees incurred with borrowings ( 1,148 ) — —

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4 6,715 15,375 198,914 ( 164 ) ( 19,403 ) 201,441

Comprehensive income:

Comprehensive income (loss):

Net income — — — 38,793 — — 38,793

Other comprehensive income — — — — 147 — 147

Other comprehensive loss — — — — ( 151 ) — ( 151 )

Dividends and dividend equivalents of $ 0.40 per common share and per restricted stock unit, net of estimated forfeitures

3 unchanged sentences

Stock shares repurchased — — — — — ( 5,489 ) ( 5,489 )

Adjustment related to Accounting Standards Update 2018-02 adoption — — — ( 69 ) 69 —

Balance, December 31, 2019

4 6,715 14,029 230,784 ( 246 ) ( 20,242 ) 231,044

Comprehensive income (loss):

Comprehensive income:

Net income — — — 40,345 — — 40,345

Other comprehensive loss — — — — ( 151 ) — ( 151 )

Other comprehensive income — — — — 732 — 732

Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures

3 unchanged sentences

Stock shares repurchased — — — — — ( 4,411 ) ( 4,411 )

Adjustment related to Accounting Standards Update 2018-02 adoption — — — ( 69 ) 69 — —

Balance, December 31, 2020

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The application of certain of these policies places demands on management's judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain.

For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment.

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Revenue Recognition.

As a result of the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers and related amendments ( Topic 606 ) on January 1, 2018, the Company changed its accounting policy for revenue recognition (see Note 3).

Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for the performance obligations.

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This is a faithful depiction of the satisfaction of the performance obligation because, at that point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has present obligation to pay.

The Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells unaged distillate to customers, and the product is subsequently barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers.

Even though the unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product.

The Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers.

Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product.

Control is transferred to the customer in bill and hold transactions when:

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Additionally, all the following bill and hold criteria have been met in order for control to be transferred to the customer:

the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.

the reason for the bill and hold arrangement is substantive -the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer.

Warehouse service revenue is recognized over the time that warehouse services are rendered and as they are rendered.

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The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized.

Recognition of Insurance Recoveries.

Estimated loss contingencies are recognized as charges to income when they are probable and reasonably estimable.

Insurance recoveries are not recognized until all contingencies related to the insurance claim have been resolved and settlement has been reached with the insurer.

Insurance recoveries, to the extent of costs and losses, are reported as a reduction to costs on the Consolidated Statements of Income.

Insurance recoveries, in excess of costs and losses, if any, would be reported as a separate caption in Operating income on the Consolidated Statements of Income.

Income Taxes.

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A valuation allowance is recognized if it is "more likely than not" that at least some portion of the deferred tax asset will not be realized.

Earnings Per Share ("EPS").

Basic and diluted EPS is computed using the two class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings.

Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each year or period.

Goodwill and Other Intangible Assets.

The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units.

The Company tests goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value.

To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units.

Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units.

The fair value of the reporting units was estimated with the assistance of third party independent appraisals.

The Company separately evaluates indefinite-lived intangible assets for impairment.

As of December 31, 2020, the Company determined that goodwill and indefinite lived intangible assets were not impaired.

Fair Value of Financial Instruments.

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Certain commodities the Company uses in its production process, or input costs, exposes it to market price risk due to volatility in the prices for those commodities.

Through the Company’s grain supply contracts for its Atchison and Lawrenceburg facilities, its wheat flour supply contract for the Atchison facility, and its natural gas contracts for both facilities, it purchases grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated prices.

The Company has determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of its supply contracts meets the normal purchases and sales exception as defined under ASC 815, Derivatives and Hedging , because the quantities involved are for amounts to be consumed within the normal expected production process.

Recently Adopted Accounting Standard Updates.

The Company adopted ASU 2016-02, Leases (Topic 842) and subsequent updates, as of January 1, 2019, using the modified retrospective approach (See Note 8).

The modified retrospective approach provides a method for recording existing leases at adoption and using the effective date as the date of application (the “effective date method”).

Under the effective date method, the comparative period reporting is unchanged.

Comparative reporting periods are presented in accordance with Topic 840 (previous lease guidance), while periods subsequent to the effective date are presented in accordance with Topic 842.

In addition, the Company elected the available practical expedients and implemented internal controls to enable the preparation of financial information on adoption.

Adoption of the new standard resulted in the Company recording Operating lease right-of-use assets and Operating lease liabilities in its Consolidated Balance Sheet of $ 6,598 and $ 6,952 , respectively, as of January 1, 2019.

The standard did not impact the Company’s consolidated net earnings and also had no impact on its cash flows.

In February 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”).

The Company adopted this guidance on January 1, 2019.

We elected to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings which resulted in an immaterial effect on its consolidated financial results and disclosures.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for employee and nonemployee share-based payments.

The Company adopted this guidance on January 1, 2019, and it had no impact on its consolidated financial results and disclosures.

Recently Issued Accounting Pronouncement.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and subsequent updates.

The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded.

ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019.

The guidance is to be adopted using the modified retrospective approach.

The Company is still evaluating the effect that ASU 2016-13 will have on the Company, however we do not expect this to have a material impact to the consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) , which modifies the disclosure requirements on fair value measurements.

The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted upon issuance of this update.

The Company is still evaluating the effect that ASU 2018-13 will have on the Company, however we do not expect this to have a material impact to the consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of accounting for income taxes.

Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequent updates, which changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded.

The Company adopted this standard on January 1, 2020 using the modified retrospective approach, and it had no impact on its consolidated financial statements and disclosures.

ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill by eliminating the step 2 from the goodwill impairment test.

An impairment in goodwill is recognized if the carrying amount of the reporting unit exceeds its fair value.

The Company adopted this standard on January 1, 2020 on a prospective basis.

The adoption of this standard had no impact on the Company's consolidated financial statements and disclosures.

ASU 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements.

The Company adopted this guidance on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

ASU 2019-12, Simplifying the Accounting for Income Taxes , which clarifies and simplifies certain aspects of accounting for income taxes.

This standard requires certain aspects to be adopted on either a retrospective or modified retrospective basis, while others apply prospectively.

This guidance is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

The Company elected to early adopt this standard on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements.

ASU 2020-04, Facilitation of Effects of Reference Rate Reform on Financial Reporting , which provide optional expedients and exceptions for a period of time to help facilitate the adoption of reference rate reform and the impact on financial reporting.

This guidance is effective immediately upon issuance and may be applied prospectively to contract modifications and transactions affected by reference rate reform before December 31, 2022.

This amendment is not applicable to contract modifications made after December 31, 2022.

The Company is still evaluating the effect that ASU 2020-04 will have on its consolidated financial statements and related disclosures.

ASU 2021-01, Reference Rate Reform - Scope , which provides certain expedients and exceptions when applying the reference rate reform to certain derivative and hedging contracts.

This guidance is effective immediately for all entities on a full retrospective basis subsequent to March 12, 2020 or on a prospective basis to new contracts.

The amendment is not applicable to contract modifications made after December 31, 2020.

The Company is still evaluating the effect that ASU 2021-01 will have on its consolidated financial statements and related disclosures.

OTHER BALANCE SHEET CAPTIONS

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Total $ 20,752 $ 9,383

Adoption of Topic 606, Revenue From Contracts with Customers .

On January 1, 2018, the Company adopted Topic 606, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

Financial results for the years ended December 31, 2019 and 2018 are presented under Topic 606, while financial results for the year ended December 31, 2017 are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition .

There was no adjustment to opening retained earnings during the year ended December 31, 2018 and no differences to disclosure to reconcile financial statement activity as reported under Topic 606 to ASC 605 for the year ended December 31, 2018.

The Company generates revenues from the Distillery Products segment by the sale of products and by providing warehouse services related to the storage and aging of customer products.

The Company generates revenues from the Ingredient Solutions segment by the sale of products.

Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services is recognized over time.

Contracts with customers in both segments include a single performance obligation (either the sale of products or the provision of warehouse services).

Disaggregation of Sales.

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Year Ended December 31,

2019 2018 2017 (a)

2020 2019 2018

Distillery Products

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Total sales $ 395,521 $ 362,745 $ 376,089

(a) Prior year amounts were not adjusted upon adoption of Topic 606.

The Company generates revenues from the Distillery Products segment by the sale of products and by providing warehouse services related to the storage and aging of customer products.

The Company generates revenues from the Ingredient Solutions segment by the sale of products.

Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services is recognized over time.

Contracts with customers in both segments include a single performance obligation (either the sale of products or the provision of warehouse services).

EQUITY METHOD INVESTMENTS

As of December 31, 2019 and 2018, the Company’s equity method investments were zero .

Illinois Corn Processing ("ICP") Investment.

In 2017, the Company completed the sale of its equity ownership interest in ICP to Pacific Ethanol Central, LLC ("Pacific Ethanol"), consistent with an Agreement and Plan of Merger ("Merger Agreement").

The total transaction proceeds to the Company from the ICP sale transaction represented a return of its investment in ICP of $ 22,832 (net of fees and including additional dividends), which included a gain on sale of equity method investment of $ 11,381 (before tax), on the Company’s 2017 Consolidated Statement of Income.

The Merger Agreement contemplated a special distribution of all of ICP’s cash and cash equivalents to equity owners prior to the closing, which

resulted in the Company receiving cash dividend distributions from ICP during June 2017 totaling $ 7,430 that reduced its 30 percent ownership interest.

The Company’s equity method investment losses for the year ended December 31, 2017 was $ 348 .

Related Party Transactions.

In 2019 and 2018, Pacific Ethanol (formerly ICP) was not a related party of the Company.

During 2017, related party sales to ICP were $ 17,672 which were included in Sales on the Company's Consolidated Statements of Income.

During 2017, related party purchases by the Company from ICP were approximately $ 18,425 , that were included in Cost of sales on the Company’s Consolidated Statements of Income.

In June 2017, the Company received cash dividend distributions from ICP totaling $ 7,430 , as mentioned above.

Summary Financial Information.

Condensed financial information of the Company’s equity method investment in ICP for the year ended December 31, 2017:

Year Ended December 31,

ICP’s Operating results:

Sales $ 78,062

Cost of sales and expenses (a)

Net loss $ ( 1,162 )

(a) Includes depreciation and amortization of $ 1,720 for 2017.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units.

Goodwill and indefinite-lived intangible assets are included in Other assets on the Consolidated Balance Sheets.

Changes in carrying amount of goodwill and indefinite-lived intangible assets by business segment were as follows:

Distillery Products (a)

Ingredient Solutions Total (a)

Balance at December 31, 2019

$ 1,850 $ — $ 1,850

Acquisitions 1,778 — 1,778

Balance at December 31, 2020

$ 3,628 $ — $ 3,628

(a) Includes $ 890 and $ 350 of trade names at December 31, 2020 and 2019, respectively.

Trade names are considered indefinite-lived intangible assets.

CORPORATE BORROWINGS

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The following table presents the Company’s outstanding indebtedness

Credit Agreement - Revolver, 3.19 % (variable rate) due 2022 (a)

Description (a)

Credit Agreement - Revolver, 1.15 % (variable rate) due 2025

Previous Credit Agreement - Revolver, 3.19 % (variable rate) due 2022

Secured Promissory Note, 3.71 % (fixed rate) due 2022

Prudential Note Purchase Agreement, 3.53 % (fixed rate) due 2027

20,000 20,000

Secured Promissory Note, 3.71 % (fixed rate) due 2022 (a)

Prudential Note Purchase Agreement, 3.53 % (fixed rate) due 2027 (a)

Prudential Note Purchase Agreement, 3.80 % (fixed rate) due 2029

20,000 20,000

Prudential Note Purchase Agreement, 3.80 % (fixed rate) due 2029 (a)

Total indebtedness outstanding 40,000 41,508

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Long-term debt $ 38,271 $ 40,659

(a) Interest rates are as of December 31, 2019.

(a) Interest rates are as of December 31, 2020, except for the Previous Credit Agreement which is as of December 31, 2019.

(b) Loan fees are being amortized over the life of the Credit Agreement and Note Purchase Agreement.

Credit Agreement and Note Purchase Agreements.

On August 23, 2017, the Company entered into credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo").

On February 14, 2020, the Company entered into a new credit agreement (the "Credit Agreement") with multiple participants led by Wells Fargo Bank, National Association ("Wells Fargo Bank").

The Credit Agreement provides for a $ 300,000 revolving credit facility.

The Company may increase the facility from time to time by an aggregate principal amount of up to $ 100,000 provided certain conditions are satisfied and at the discretion of the lender.

The Credit Agreement matures on August 23, 2022.

The Credit Agreement matures on February 14, 2025.

The Credit Agreement is secured by substantially all assets, excluding real property.

The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at December 31, 2020.

The Company incurred no new loan fees related to the Credit Agreement during 2019.

The unamortized balance of total loan fees related to the Credit Agreement was $ 299 at December 31, 2019 and is being amortized over the life of the Credit Agreement.

As of December 31, 2019, the Company’s total outstanding borrowings under the Credit Agreement were $ 300 leaving $ 149,700 available.

The interest rate for the borrowings of the Credit Agreement at December 31, 2019 was 3.2 percent.

The Company incurred $ 1,148 new loan fees related to the Credit Agreement during 2020.

The unamortized balance of total loan fees related to the Credit Agreement was $ 1,195 at December 31, 2020, which were included in Other assets, net on the Consolidated Balance Sheet.

The unamortized loan fees are being amortized over the life of the Credit Agreement.

As of December 31, 2020, the Company had no outstanding borrowings under the Credit Agreement leaving $ 300,000 available.

The interest rate for the borrowings of the Credit Agreement at December 31, 2020 was 1.2 %.

The Credit Agreement replaced the Company's $ 150,000 Credit Agreement ("Previous Credit Agreement) with Wells Fargo Bank, which was entered into on August 23, 2017.

The Previous Credit Agreement was set to mature on August 23, 2022.

The Previous Credit Agreement was secured by substantially all assets, excluding real property.

The interest rate for borrowings of the Previous Credit Agreement at December 31, 2019 was 3.2 %.

On August 23, 2017, the Company also entered into a Note Purchase and Private Shelf Agreement (the "Note Purchase Agreement") with PGIM, Inc.

("Prudential Capital Group"), an affiliate of Prudential Financial, Inc., and certain affiliates of

The Note Purchase Agreement provides for the issuance of up to $ 75,000 of Senior Secured Notes, and the Company issued $ 20,000 of Senior Secured Notes with a maturity date of August 23, 2027.

("Prudential Capital Group"), an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.

The Note Purchase Agreement was amended by the First Amendment to Private Shelf Agreement as of February 14, 2020 and the Second Amendment to Private Shelf Agreement as of September 30, 2020.

The amended agreement provides for the issuance of up to $ 105,000 of Senior Secured Notes the shelf facility and issuance of up $ 20,000 Senior Secured Notes.

The Company issued $ 20,000 of Senior Secured Notes with a maturity date of August 23, 2027.

The Senior Secured Notes bear interest at a rate of 3.5 percent per year.

On April 30, 2019, the Company issued $ 20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029.

On April 30, 2019, the Company issued $ 20,000 of additional Senior Secured

Notes with a maturity date of April 30, 2029.

The Senior Secured Notes bear interest at a rate of 3.8 percent per year.

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Income tax expense also included tax expense allocated to comprehensive income for 2020, 2019, and 2018 of $ 229 , $ 14 , and $ 73 , respectively (see the Consolidated Statements of Comprehensive Income).

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Act, resulting in significant modifications to the then existing law, impacting the measurement of income taxes for the year ended December 31, 2017, and the years thereafter.

The Company recorded a discrete net tax benefit in its Consolidated Statement of Income through net income of $ 3,343 in the year ended December 31, 2017.

This net benefit was driven by a re-measurement of the carrying value of its deferred tax assets and liabilities because of the corporate rate reduction.

This net benefit provided a 6.3 percent reduction in the Company’s effective tax rate for the year ended December 31, 2017.

In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") on March 27, 2020.

The CARES Act along with other guidance issued by the IRS provides for numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer portion of Social Security taxes, deferral of income tax payments until July 15, 2020, and technical corrections from prior tax legislation.

The Company is in the process of monetizing certain parts of the CARES Act and continues to monitor tax legislation for additional potential benefits available to the Company.

In addition, President Trump signed a second COVID-19 stimulus bill, the Coronavirus Relief and Government Funding Act, on December 27, 2020.

The Company is in the process of reviewing that legislation.

As of December 31, 2020, to the extent applicable, MGP has reflected both stimulus packages in its consolidated financial statements.

A reconciliation of income tax expense at the normal statutory federal rate to income tax expense included in the accompanying Consolidated Statements of Income is below:

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"Expected" provision at federal statutory rate $ 11,046 $ 9,654 $ 10,286

State income taxes, net (a)

1,540 2,029 1,612

State income taxes, net 2,408 1,540 2,029

Change in valuation allowance ( 422 ) ( 168 ) 1,304

Domestic production activity deduction — — ( 957 )

Share-based compensation (a)

( 2,877 ) ( 1,201 ) ( 4,254 )

Share-based compensation 56 ( 2,877 ) ( 1,201 )

Compensation limits 125 148 —

Federal and state tax credits ( 1,035 ) ( 1,302 ) ( 807 )

Tax benefit from the Tax Act — — ( 3,343 )

Other 78 149 85

1 unchanged sentence

Effective tax rate 23.3 % 15.6 % 23.9 %

(a) The Company received federal excess tax benefits on share-based compensation awards in 2019, 2018, and 2017 of $ 2,877 , $ 1,201 , and $ 4,254 , respectively, and state benefits of $ 459 , $ 236 and $ 371 , respectively, for excess tax benefits.

The state benefits are part of the State income taxes, net, balances in the above table.

Tax benefits from share-based compensation may be substantially less in future years, and in certain instances can create tax determinant.

The tax effects of temporary differences giving rise to deferred income taxes shown on the Consolidated Balance Sheets are as follows:

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Operating lease liabilities 1,322 1,582

Deferred compensation 1,250 —

Other 1,036 1,291

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Balance at December 31, 2018

Increase 1,304

Decrease ( 168 )

Balance at December 31, 2019

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Balance at December 31, 2020

As of December 31, 2019 and 2018, the Company’s total valuation allowance of $ 1,284 and $ 1,452 , respectively, related to net operating loss carryforwards in states in which it is not "more likely than not" to create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods, and capital loss carryforwards that the Company is not "more likely than not" to use before they expire.

The reduction of the valuation allowance year over year is due to certain capital loss carryforwards and corresponding deferred tax asset related valuation allowance that expired at the end of 2019.

As of December 31, 2020, the Company’s total valuation allowance of $ 862 related to net operating loss carryforwards and certain tax credits in states in which it is not "more likely than not" to create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods.

As of December 31, 2019, the Company’s total valuation allowance of $ 1,284 related to net operating loss carryforwards in states in which it is not "more likely than not" to create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods, and capital loss carryforwards that the Company is not "more likely than not" to use before they expire.

The reduction of the valuation allowance year-over-year is due to certain capital loss carryforwards and the corresponding deferred tax asset and related valuation allowance expiring at the end of 2020, and the reduction of the valuation allowance related to certain state tax attributes.

As of December 31, 2020 and 2019, the Company had $ 18,697 and $ 21,918 in gross state net operating loss carryforwards, respectively.

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Reduction for prior year tax positions — ( 19 ) ( 5 )

Reductions for settlements ( 165 ) — —

End of year balance $ 112 $ 255 $ 193

For each period presented, substantially all of the amount of unrecognized benefits (excluding interest and penalties) would impact the effective tax rate, if recognized.

The Company reasonably expects that the amount of unrecognized tax benefit will decrease by approximately half of its value over the next 12 months due to the statute of limitations expiring for unrecognized tax benefits related to the tax year ending 2016.

The recognized tax benefit related to this decrease may be less than the gross activity due to audit adjustments.

The Company is currently under federal income tax audit for tax year 2016.

The Company does not expect this audit to result in a significant adjustment.

The Company reasonably expects that the amount of unrecognized tax benefit will not change significantly over the next 12 months.

The Company completed an audit of federal income tax audit for tax year 2016, without significant findings.

For federal tax purpose, all tax years after 2016 remain open to adjustment.

The Company is subject to examination for its state returns for year 2015, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2015 that remain subject to adjustment.

The Company is subject to examination for its state tax returns for years 2016, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2016 that remain subject to adjustment.

EQUITY AND EPS

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This share repurchase program may be modified, suspended, or terminated by the company at any time without prior notice.

From the commencement date of the authorization period through the year ended December 31, 2019, no shares were repurchased under the program.

During the year ended December 31, 2020, the Company repurchased approximately 159,104 shares of MGP Common Stock for $ 4,053 , resulting in $ 20,947 remaining under the share repurchase plan.

The shares were repurchased in multiple separate tranches with the final purchase concluding on March 16, 2020.

Dividends and Dividend Equivalents

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February 24 March 13 March 27 $ 0.12 $ 0.12 $ 2,047 $ 13 $ 2,060

April 28 May 22 June 5 0.12 0.12 2,027 14 2,041

July 28 August 21 September 4 0.12 0.12 2,029 14 2,043

October 27 November 20 December 4 0.12 0.12 2,030 14 2,044

$ 0.48 $ 0.48 $ 8,133 $ 55 $ 8,188

February 25 March 13 March 29 $ 0.10 $ 0.10 $ 1,701 $ 13 $ 1,714

April 29 May 15 May 31 0.10 0.10 1,702 11 1,713

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$ 0.32 $ 0.32 $ 5,393 $ 107 $ 5,500

February 15 March 1 March 24 $ 0.04 $ 0.04 $ 668 $ 20 $ 688

May 2 May 15 June 9 0.04 0.04 668 20 688

August 1 August 18 September 8 0.85 0.85 14,215 413 14,628

August 1 August 18 September 11 0.04 0.04 669 19 688

October 31 November 14 December 8 0.04 0.04 669 19 688

$ 1.01 $ 1.01 $ 16,889 $ 491 $ 17,380

(a) Dividend equivalent payments on unvested participating securities (see Note 10).

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The following table provides supplemental balance sheet classification information related to leases:

Leases Balance Sheet Classification December 31, 2019

Leases Balance Sheet Classification 2020 2019

Operating Operating lease right-of-use-assets, net $ 5,151 $ 6,490

Total leased assets

$ 5,151 $ 6,490

Current Operating Accrued expenses $ 2,112 $ 2,244

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Total operating lease liability

$ 5,169 $ 6,511

The following table presents the components of lease costs:

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Net lease costs (a)

$ 2,886 $ 2,954

(a) Recorded as a component of Operating income on the Company’s Consolidated Statement of Income.

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Operating cash flows from operating leases

$ 2,707 $ 2,414

Right-of-use assets obtained in exchange for lease obligations

Operating leases

$ 1,048 $ 2,064

The following table presents weighted average discount rate and remaining lease term:

December 31, 2019

Weighted average discount rate

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Weighted average remaining lease term

Operating leases 3.3 years

Operating leases 2.8 years 3.3 years

As of December 31, 2020, the maturities of operating lease liabilities were as follows:

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Total operating lease liability $ 5,169

At December 31, 2018, under ASC 840, Leases , the Company’s lease disclosures were:

Operating Leases.

The Company leases railcars and other assets under various operating leases.

For railcar leases, which are the majority, the Company is generally required to pay all service costs associated with the railcars.

Rental payments include minimum rentals, and rental expenses with terms longer than one month were $ 2,081 and $ 2,372 for 2018 and 2017, respectively.

Annual commitments under non-cancelable operating leases totaled $ 6,897 for the five years ending December 31, 2023, and an additional $ 55 thereafter.

The Company’s future minimum rental payments were $ 2,224 , $ 1,858 , $ 1,357 , $ 977 , and $ 481 for the years ending December 31, 2019, 2020, 2021, 2022, and 2023, respectively.

Maturity of Operating Lease Liabilities December 31, 2018

After 2023 55

Total lease commitments $ 6,952

COMMITMENTS AND CONTINGENCIES

As of October 2018, the Company carries $ 10,000 in industrial revenue bonds with the City of Williamstown, Kentucky (the "City") that mature in 2047, and leases back facilities owned by the City that the Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease.

Beginning in October 2018, the Company carries $ 10,000 in industrial revenue bonds with the City of Williamstown, Kentucky (the "City") that mature in 2047, and leases back facilities owned by the City that the Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease.

The lease payment on the facilities is sufficient to pay principal and interest on the bonds.

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The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.

Feed Dryer Fire.

During November 2020, the Company experienced a fire at the Atchison facility.

The fire damaged certain equipment in the facility's feed drying operations and caused temporary loss of production time.

The Company impaired $ 681 of spare parts and other inventory which was recorded in Cost of sales on the Consolidated Statements of Income for the year ended December 31, 2020.

Additionally, the Company incurred $ 486 in losses from the write off of property, plant and equipment, which was recorded as a component of Operating income on the Consolidated Statements of Income for the year ended December 31, 2020.

During December 2020, the Company recorded a $ 3,780 partial settlement from its insurance carrier as a reduction of Cost of sales.

The Company is working to construct a replacement drying system.

The Company’s insurance is expected to provide coverage of any business interruption and other losses from damage to property, plant and equipment, but there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

Ransomware Cyber-Attack .

In May 2020, the Company was affected by a ransomware cyber-attack that temporarily disrupted production at its Atchison facilities.

The Company's financial information was not affected and there is no evidence that any sensitive or confidential company, supplier, customer or employee data was improperly accessed or extracted from our network.

The Company has insurance related to this event and partially recovered $ 633 in December 2020 as reduction of Cost of sales.

The Company is currently evaluating if it will seek further recovery related to this event.

Following the attack, MGP implemented a variety of measures to further enhance our cybersecurity protections and minimize the impact of any future attack.

The Company’s insurance may cover additional losses from this incident, but there can be no assurance as to the amount or timing of any possible insurance recoveries if ultimately claimed by the Company.

Shareholder matters.

In 2020, two putative class action lawsuits were filed in the United States District Court for District of Kansas, naming the Company and certain of its current and former executive officers as defendants, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The plaintiffs seek to pursue claims on behalf of a class consisting of purchasers or acquirers of the Company's Common Stock during certain specified periods (the “Class Periods”).

On May 28, 2020, the two lawsuits were consolidated and the Court appointed City of Miami Fire Fighters’ and Police Officers’ Retirement Trust as lead plaintiff.

The consolidated action is captioned In re MGP Ingredients, Inc.

Securities Litigation and the file is maintained under Master File No.

2:20-cv-2090-DDCJPO.

On July 22, 2020, the Retirement Trust filed a consolidated Amended Complaint.

The Consolidated Complaint alleges that the defendants made false and/or misleading statements regarding the Company’s forecasts of sales of aged whiskey, and that, as a result the Company's Common Stock traded at artificially inflated prices throughout the Class Periods.

The plaintiffs seek compensatory damages, interest, attorneys’ fees, costs, and unspecified equitable relief, but have not specified the amount of damages being sought.

On September 8, 2020, defendants filed a Motion to Dismiss the Consolidated Amended Complaint.

The Motion has been fully briefed and remains pending.

Discovery is stayed while the motion is pending.

The Company intends to continue to vigorously defend itself in this action.

On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Dorfman, derivatively on behalf of MGP Ingredients v.

Griffin, et al.

, Case 2:20-cv-02239.

On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Carter, derivatively on behalf of MGP Ingredients v.

Griffin, et al.

, Case 2:20-cv-02281.

On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas , under the caption Kearns, derivatively on behalf of MGP Ingredients v.

Griffin, et al.

, Case 2020-CV-000042 .

The defendants are certain of the Company’s current and former officers and directors.

The Company is a nominal defendant in each action.

Plaintiffs allege that the Company was damaged as a result of the conduct of the individual defendants alleged in the MGP Ingredients, Inc.

Securities Litigation , the repurchase of company stock at artificially inflated prices, and compensation paid to the individual defendants.

The Complaint in Dorfman asserts claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment.

The Complaint in Carter asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment.

The Petition in Kearns asserts claims for breach of fiduciary duties, waste of

corporate assets, and unjust enrichment.

The pleadings pray for an award of compensatory damages, including interest, in favor of the Company, for equitable relief related to the Company’s corporate governance, for disgorgement of compensation, and for an award of attorneys’ fees and costs.

On July 13, 2020, defendants filed a Motion to Dismiss in Dorfman .

The Motion has been fully briefed and remains pending.

On August 13, 2020, defendants filed a Motion to Stay the Kearns action pending the resolution of Dorfman.

The Motion has been fully briefed and remains pending.

On November 3, 2020, the court entered an order providing that Defendants’ response to the Carter Complaint shall be due 14 days after a ruling on the Motion to Dismiss filed in Dorfman.

On November 25, 2020, Kenneth Laury filed an action in the District Court of Shawnee County, Kansas under the caption Laury v.

MGP Ingredients, Inc., Case Number:

2020-CV-000609.

The Petition alleges that plaintiff commenced the action under K.S.A.

17-6510 to enforce his alleged right to inspect books and records of the Company, in order to enable him to evaluate possible misconduct by the Company’s Board of Directors and management.

On January 8, 2021, the Company filed an Answer to the Petition, denying that plaintiff has satisfied the statutory requirements for his demand.

2016 Atchison Chemical Release.

A chemical release occurred at the Company's Atchison facility on October 21, 2016, which resulted in emissions venting into the air ("the Atchison Chemical Release").

The Company reported the event to the Environmental Protection Agency ("EPA"), the Occupational, Safety, and Health Administration ("OSHA"), and to Kansas and local authorities on that date, and has cooperated fully to investigate and ensure that all appropriate response actions are taken.

The Company has also engaged outside experts to assist the investigation and response.

There was no significant damage to the Company’s Atchison plant as a result of this incident.

No other MGP facilities, including the distillery in Lawrenceburg, Indiana, were affected by this incident.

OSHA completed its investigation of the Atchison Chemical Release and, on April 19, 2017, issued its penalty to the Company in the amount of $ 138 .

Management settled this assessment with OSHA in full for $ 75 , which was paid on May 16, 2017.

A portion, or all, of the penalty amount may be covered by insurance.

The EPA informed the Company on August 1, 2017, that it intended to seek an administrative civil penalty of approximately $ 250 in connection with its investigation of the Atchison Chemical Release.

During 2019, the Company reached a resolution on the EPA administrative civil penalty case in the amount of $ 251 , which was included as a component of Accounts payable in the Company’s Consolidated Balance Sheet as of December 31, 2019.

On May 29, 2019, federal charges for alleged violations of the Clean Air Act related to the Atchison Chemical Release were filed against the Company, along with another unaffiliated company.

During 2019, the Company reached a plea agreement with the Department of Justice pertaining to a negligent Clean Air Act violation pursuant to which the Company agreed, among other things, to a fine of $ 1,000 , which is included as a component of Accounts payable in the Company’s Consolidated Balance Sheet as of December 31, 2019.

Private plaintiffs have initiated, and additional private plaintiffs may initiate, legal proceedings for damages resulting from the Atchsion Chemical Release, but the Company is currently unable to reasonably estimate the amount of any such damages that might result.

The Company’s insurance is expected to provide coverage of any damages to private plaintiffs, subject to a deductible of $ 250 , but certain regulatory fines or penalties may not be covered and there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

The Company’s insurance may provide coverage of any damages to private plaintiffs, subject to a deductible of $ 250 , but certain regulatory fines or penalties may not be covered and there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

EMPLOYEE BENEFIT PLANS

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The Company sponsors life insurance coverage as well as medical benefits, including prescription drug coverage, to certain retired employees and their spouses.

In 2014, the Company made a change to the plan to terminate post-employment health care and life insurance benefits for all union employees except for a specified grandfathered group.

At December 31, 2019, the plan covered 166 participants, both active and retired.

The post-employment health care benefit is contributory for spouses under certain circumstances.

Otherwise, participant contribution premiums are not required.

The health care plan contains fixed deductibles, co-pays, coinsurance, and out-of-pocket limitations.

The life insurance segment of the plan is noncontributory and is available to retirees only.

The Company funds the post-employment benefit on a pay-as-you-go basis, and there are no assets that have been segregated and restricted to provide for post-employment benefits.

Benefit eligibility for the current remaining grandfathered active group ( 23 employees) is age 62 and 5 years of service.

The Company pays claims and premiums as they are submitted.

The Company provides varied levels of benefits to participants depending upon the date of retirement and the location in which the employee worked.

An older group of grandfathered retirees receives lifetime health care coverage.

All other retirees receive coverage to age 65 through continuation of the Company group medical plan and a lump sum advance premium to the MediGap carrier of the retiree’s choice.

Life insurance is available over the lifetime of the retiree in all cases.

In 2014, the Company made a change to the plan to terminate post-employment health care and life insurance benefits for retirees and employees except for a specified grandfathered group.

As of December 31, 2020 and 2019, total current benefit obligation recorded in Accrued expense on the Consolidated Balance Sheets was $ 266 and $ 441 , respectively.

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The plans were approved by shareholders at the Company’s annual meeting in May 2014.

The 2014 Plan replaced the 2004 Plan.

Detail of activities in both plans follows below.

1 unchanged sentence

Compensation expense related to restricted stock awards is based on the market price of the stock on the date the Board of Directors communicates the approved award and is amortized over the vesting period of the restricted stock award.

Consolidated Statements of Income for 2019, 2018, and 2017 reflect total share-based compensation costs and director fees for awarded grants of $ 2,424 , $ 2,612 , $ 2,245 , respectively, related to these plans.

The Consolidated Statements of Income for 2020, 2019, and 2018 reflect total share-based compensation costs and director fees for awarded grants of $ 2,723 , $ 2,424 , $ 2,612 , respectively, related to these plans.

For long-term incentive awards to be granted in the form of RSUs in 2021 based on 2020 results, the Human Resources and Compensation Committee ("HRCC") determined that the grants would have performance conditions that would be based on the same performance metrics as the Short-Term Incentive Plan (the "STI Plan").

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The Consolidated Statements of Income for 2020, 2019, and 2018 reflects share-based compensation costs for grants to be awarded of $ 2,566 , $ 123 , and $ 821 , respectively.

At the Company’s annual meeting in May 2014, shareholders approved a new Employee Stock Purchase Plan (the "ESPP Plan") with 300,000 shares registered for employee purchase.

The ESPP Plan is not active at this time.

The Company’s former employee stock purchase plan continued in use until its termination during 2017.

The 2014 Plan, with 1,500,000 shares registered for future grants, provides that vesting occurs pursuant to the time period specified in the particular award agreement approved for that issuance of RSUs, which is to be not less than three years unless vesting is accelerated due to the occurrence of certain events.

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As of December 31, 2020, 109,220 shares were granted of the 300,000 shares approved for grants under the Directors’ Plan and all 109,220 shares were vested.

Under the 2004 Plan, as amended, the Company granted incentives (including stock options and restricted stock awards) for up to 2,680,000 shares of the Company’s Common Stock to salaried, full time employees, including executive officers.

The term of each award generally was determined by the committee of the Board of Directors charged with administering the 2004 Plan.

Under the terms of the 2004 Plan, any options granted were non-qualified stock options, exercisable within ten years and had an exercise price of not less than the fair value of the Company’s Common Stock on the date of the grant.

As of December 31, 2019, no stock options and no unvested restricted stock shares (net of forfeitures) remained outstanding under the 2004 Plan.

No future grants can be made under the 2004 Plan.

In 2012, the 2004 Plan was amended to provide for grants in the form of RSUs.

The awards entitle participants to receive shares of stock following the end of a five year vesting period.

Participants have no voting of dividend rights under the awards that were granted;

however, the awards provide for payment of dividend equivalents when dividends are paid to stockholders.

During January 2019, the remaining 145,000 RSUs under the 2004 Plan vested.

As of December 31, 2019, there were no unvested RSUs under the 2004 Plan and no RSU awards were available for future grants under the 2004 Plan.

Summary of unvested RSUs under the Company’s share-based compensation plans for 2020, 2019, and 2018:

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Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

From plan inception through December 31, 2018, participants were only able to direct the deferral of a portion of their 2018 STI Plan amounts that were paid during first quarter 2019.

At the time of payment, the amounts elected for deferral were deposited into the EDC Plan by the Company and allocated by participants among Company-determined investment options.

For 2019, participants were able to direct the deferral of a portion of their 2019 base salary and a portion of their estimated accrued 2019 STI Plan amount.

Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options.

The current portion of deferred compensation plan deferrals is comprised of estimated amounts to be paid within one year depending on timing of planned disbursements.

At December 31, 2019, the EDC Plan investments were $ 1,185 which were recorded in Other assets on the Company's Consolidated Balance Sheet.

There were no Plan assets at December 31, 2018.

EDC Plan liabilities were $ 1,337 and $ 1,176 as of December 31, 2019 and 2018, respectively, which were recorded in Other non-current liabilities on the Company's Consolidated Balance Sheet.

The current portion of deferred compensation plan deferrals is comprised of estimated amounts to be paid within one year depending on timing of planned

disbursements.

At December 31, 2020 and 2019, the EDC Plan investments were $ 2,007 and $ 1,185 , respectively, which were recorded in Other assets on the Company's Consolidated Balance Sheet.

The EDC Plan liabilities were $ 3,140 and $ 1,337 as of December 31, 2020 and 2019, respectively, which were recorded in Other non-current liabilities on the Company's Consolidated Balance Sheet.

CONCENTRATIONS

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In addition, the Company’s ten largest suppliers, accounted for approximately 65 percent of consolidated purchases.

For 2018, the Company had purchases from two grain suppliers that approximated 29 percentof consolidated purchases.

The Company also purchased food grade alcohol from Pacific Ethanol of approximately 12 percent of consolidated purchases.

In addition, the Company’s ten largest suppliers, including these three suppliers, accounted for approximately 68 percent of consolidated purchases.

For 2019, the Company had purchases from two grain suppliers that approximated 31 percent of consolidated purchases.

In addition, the Company’s ten largest suppliers accounted for approximately 66 percent of consolidated purchases.

For 2018, the Company had purchases from two grain suppliers that approximated 29 percent of consolidated purchases.

The Company also purchased food grade alcohol from Pacific Ethanol of approximately 12 percent of consolidated purchases.

In addition, the Company’s ten largest suppliers, including these three suppliers, accounted for approximately 68 percent of consolidated purchases.

OPERATING SEGMENTS

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Operating profit for each segment is based on sales less identifiable operating expenses.

Non-direct SG&A, interest expense, earnings from the Company’s equity method investments until sold on July 3, 2017, other special charges, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate.

Non-direct SG&A, interest expense, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate.

Receivables, inventories, and equipment have been identified with the segments to which they relate.

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Total $ 52,601 $ 45,937 $ 48,980

(a) Sales revenue from foreign sources totaled $ 19,372 , $ 19,782 , and $ 22,870 for 2019, 2018, and 2017, respectively, and is largely derived from Japan, Thailand, and Canada.

(a) Sales revenue from foreign sources totaled $ 23,905 , $ 19,372 , and $ 19,782 for 2020, 2019, and 2018, respectively, and is largely derived from Japan, Thailand, Mexico, and Canada.

The balance of total sales revenue is from domestic sources.

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Operating income 15,543 13,652 11,338 13,708

Interest expense, net ( 368 ) ( 364 ) ( 321 ) ( 252 )

Interest expense, net and other ( 291 ) ( 409 ) ( 298 ) ( 642 )

Income before income taxes 15,252 13,243 11,040 13,066

20 unchanged sentences

SUBSEQUENT EVENTS

Definitive Merger Agreement with Luxco, Inc.

On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, Inc., and its affiliated companies ("Luxco").

Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage.

As a result of the Luxco acquisition, MGP expects to increase it's scale and market position in the branded-spirits sector and strengthen its platform for future growth of higher valued-added products.

Under the terms of the agreement, Luxco shareholders will receive $ 237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company.

The purchase price is subject to customary purchase price adjustments, including working capital, which adjustments are anticipated to be paid in cash.

Dividend Declaration

1 unchanged sentence

The dividend payment and dividend equivalent payment will occur on March 26, 2021.

New Credit Agreement

On February 14, 2020, the Company entered into a new credit agreement (the "New Credit Agreement") with Wells Fargo.

The New Credit Agreement replaces the Company's existing Credit Agreement with Wells Fargo.

The New Credit Agreement provides for a $ 300,000 revolving credit facility.

The Company may increase the facility from time to time by an aggregate principal amount of up to $ 100,000 provided certain conditions are satisfied and at the discretion of the lenders.

The Credit Agreement matures on February 14, 2025.

The New Credit Agreement is secured by substantially all assets, excluding real property.

In connection with the Company’s entry into the Credit Agreement, on February 14, 2020, the Company entered into an amendment to the Note Purchase and Private Shelf Agreement, dated as of August 23, 2017, made by the Company, as issuer, and Prudential Capital Group, as purchasers in order to permit the Company’s use of the revolving credit facility (and any increases thereto) pursuant to the New Credit Agreement and to make conforming amendments to certain financial and other covenants.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data